In the long run, there is
A) a tradeoff between unemployment and inflation.
B) a tradeoff between unemployment and real GDP.
C) no tradeoff between fiscal policy and monetary policy.
D) no tradeoff between unemployment and inflation.
E) a tradeoff between unemployment and natural unemployment.

Question

Quizplus · Accepted Answer

This is known as the Phillips Curve, which presents an inverse relationship between unemployment and inflation in the short run. However, in the long run, the Phillips Curve is a vertical line, meaning there is no tradeoff between unemployment and inflation in the long run. This is because in the long run, expected inflation adjusts to changes in actual inflation, which means that any decrease in unemployment through expansionary policies will be offset by an increase in inflation. Therefore, the best choice is D, no tradeoff between unemployment and inflation.

In the Long Run, There Is